Opinion: China's real estate crisis has impacted the U.S. housing market.

The real estate market in China, both commercial and residential, has been unraveling over the past few years. At first it looked like a slow-motion catastrophic event, but now it has finally gone off the rails and is heading for a cliff, repeating a pattern eerily similar to events in the US in 2008 and 2009.

Lax lending standards and the availability of cheap credit, as well as the widespread belief that real estate values never go down, have created a huge bubble. Earlier this summer, news of Evergrande's massive default made headlines, followed by Country Garden's near-bankruptcy. Now add to that the recent news of outright fraud and embezzlement by Evergrande executives, and''There's a chance this sector could drag down an already slowing Chinese economy.

Global economic uncertainty

With the sheer size of the Chinese economy, as the saying goes, if they have a runny nose, the rest of the world may have a cold. Chinese real estate investments are spreading beyond their borders, and if these investors are suddenly forced to sell their assets to cover losses at home, many of the countries' real estate markets could suffer negative consequences. In the U.S., some luxury residential real estate markets that have seen an infusion of Chinese buyers could be particularly vulnerable. Investors who have been affected by events in China may also begin to see ghosts in''other markets and decide that the risk is too unprofitable. This could make it more difficult and expensive to raise capital for new construction projects around the world.

Despite the risks, developments in China could bring a number of benefits to U.S. residential real estate.

Rising demand: Despite the possibility of U.S. real estate liquidation by owners from China, the data actually points to the opposite trend. In the 12 months leading up to March 2023, Chinese spending on U.S. real estate more than doubled from the previous year. This indicates that the US market is seen as a safe haven for capital in China.

Interest Rates:The Fed has already expressed concern about the possible effects of China's economic difficulties. If these concerns become serious enough, the Fed may decide to pause or even reverse interest rate hikes. Regardless of the Fed's actions, the significant influx of real estate investment from China and elsewhere will put downward pressure on interest rates. Given the deep interconnectedness of global economies, a crisis anywhere is never a 'good' thing'news', and given the size of the Chinese economy, current events could cause upheaval abroad. However, even bad news often has a silver lining. As the Chinese real estate market declines, the U.S. residential real estate market is becoming a relatively safer place to invest. In turn, this flow of capital will lower mortgage interest rates, potentially providing some relief from one of the biggest factors holding back a full-fledged recovery in the U.S. real estate market.

Vince O'\''Neal is chief economist at Plunk. This column does not necessarily reflect the opinions of HousingWire's editorial department or its owners. To contact the author of this story, contact Vince O'\''Neal at [email protected]'''The contact person for this story is Tracy Velt at [email protected]